The U.S. electric utility sector currently faces disruption on a scale it has never experienced before.

Democratization and decarbonization of the grid demand business model evolution, and even revolution, in ways utility companies must seize and deliver to thrive. For a sector that is not traditionally known for its speed of change, this presents major challenges but, if done well, can result in a truly sustainable energy system.

Distributed Energy Resources Are the Future

Utilities are shifting from having a near monopoly to being one of several players in a competitive energy generation landscape, with rooftop solar and community solar beginning to proliferate. However, photovoltaic solar (PV) and wind power both have intermittent and unpredictable generation and create stability issues in terms of voltage and frequency.

Electric vehicles (EVs) offer a unique opportunity to both increase electricity demand and provide innovative means of working with customers to manage peak load energy consumption and storage. EVs have the ability to deliver power from the battery to the grid meaning an EV network has the potential to serve as a distributed energy storage system. Leading companies such as Pacific Gas and Electric company are piloting this way to use EVs.

Non-wire alternatives to managing electricity supply and demand can be lower cost and more dynamic than traditional transmission and distribution.

Emerging Technologies Present Opportunities

Expansion of the smart grid and Internet of Things (IoT) is accelerating. As more devices are given the capability to collect and transmit data, both corporate and residential customer expectations about how to track and manage energy usage are changing. IoT applications are expected to fundamentally change how utilities engage with their customers.

Due to the massive amount of data collection that can occur throughout a smart grid, Artificial Intelligence (AI) and machine learning have the potential to drastically impact the utility industry.

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Due to the massive amount of data collection that can occur throughout a smart grid, Artificial Intelligence (AI) and machine learning have the potential to drastically impact the utility industry. Europe is experimenting with this already. For example, the UK National Grid is currently exploring using AI to balance supply and demand. Other emerging technologies such as blockchain also have potential applications.

Cybersecurity Is a Rising Risk

The risk of a cyber attack on an energy gird increases dramatically with the growth of the decentralized grid and “smart” components. Every node, smart meter or other access point on a grid is a potential point of entry for a digital attack. Cybersecurity also refers to customer data breaches, although this is less common in the utility industry than, for example, banking. According to RobecoSAM, the number of utility companies that have reported breaches is three times larger now than it was in 2013.

While a more decentralized grid may eventually be more resilient in the sense that an attack to one part of the grid would not impact the rest of the grid, the current transition period where the grid is not fully decentralized poses more risk. Cyber security and physical security can no longer be treated separately. Physical utility infrastructure could be the target of terrorists either through cyber or physical avenues.

Stakeholders Play a Key Role in the Transition

Stakeholders’ needs and agendas are impacting the shifts in the sector, but utilities are also affecting stakeholders in various ways through their response to the industry-wide disruption.

Customers: Certain customers increasingly want choice in their energy generation and management, and technology innovation is increasingly enabling that vision. However, affordability remains a crucial value for most customers. This complex situation raises questions about future utility revenue models.

Policymakers and regulators: A lack of leadership at the federal level has brought the future of national energy policy into question and puts much more pressure on state-level policy. State-level Renewable Portfolio Standards are driving utility investments. Local government bodies are also leading. For example, San Francisco now requires all new buildings less than ten stories to be built with solar energy systems.

Employees: New utility business models require a mix of employees with technology skills but also a steady supply of blue-collar workers for core maintenance. Both face challenges to varying degrees depending on workforce distribution throughout the country: tech-savvy employees can be difficult to attract given the IT industry’s appeal and the manual skilled labor workforce is aging. Shifting from non-renewable and nuclear to solar also places pressure on companies in terms of their responsibility to support job transitions.

Investors: A growing number of mainstream investors are assessing utility companies based on their sustainability performance and transparency. The carbon intensity of an electricity utility’s energy portfolio is increasingly seen as a core risk for U.S energy utilities, however the specific regulatory environment on climate change-related topics can shape how attractive a particular utility is for investment. Proactive transparency is expected.

Successful transitioning to business models that meet environmental, social and economic demands will require utility companies to invest in new technologies, advocate for supportive policies and rate structures, collaborate in new ways and engage with customers and employees. Though utilities face many hurdles to reaching a sustainability energy vision, we are encouraged by the changes we are already seeing from leading companies and hope others follow to create the future we all deserve and need.